Sequestration Or Not, U.S. Firms, DoD Will Take a Hit

Nov. 18, 2012 - 11:52AM
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Even if the U.S. Congress is able to hammer out a debt deal that avoids sequestration in January, the resulting agreement will likely result in billions of dollars in additional cuts to the Defense Department — perhaps as much as $25 billion — likely forcing the military to alter its roles and missions.

Internally, some of the nation’s largest defense companies are also planning for a possible $25 billion cut annually from current spending levels. That $25 billion is half of what DoD is expected to absorb annually under sequestration. This month, Boeing announced a major reduction among its executive ranks as it prepares for a decline in U.S. defense spending.

“If they come up with a deal to avert sequestration, I think the defense portion of that deal will be cuts [at] about half the level that sequestration would require,” said Todd Harrison, an analyst with the Center for Strategic and Budgetary Assessments.

But the cuts, under a debt deal, would likely be distributed differently than under sequestration.

“Instead of an even $25 billion across every year for the next 10 years, it could be more back-loaded and it certainly would give DoD the flexibility to target those cuts, to allocate them in a thoughtful, strategic manner,” Harrison said.

As lawmakers and the White House attempt to craft a debt reduction deal to avert sequestration, new voices are offering suggestions for ways to include defense cuts as part of the governmentwide package. Experts argue that some of these plans, by simply trimming more fat, significantly reduce DoD spending without harming readiness.

Others say Pentagon leaders have to make real choices when it comes to which weapon systems and troop levels to fund.

Without a debt reduction deal, the Pentagon would get hit with an immediate 10 percent cut to its spending accounts in fiscal 2013, which totals about $50 billion beginning Jan. 2.

The consensus in Washington is that cuts under sequestration are not likely, although some experts believe they might temporarily go into effect until the newly elected Congress is seated and able to iron out a debt deal.

The only parts of the Pentagon budget not subject to sequestration are funding for war operations in Afghanistan, for which the Pentagon requested $88.5 billion in fiscal 2013, and all personnel accounts. DoD is contemplating a roughly $64 billion Afghanistan operations request in 2014, sources said, the same year major combat in the country is expected to end.

Another New Military Strategy

DoD unveiled a new military strategy in January, designed with $487 billion in cuts to defense spending already taken into account as a result of the Budget Control Act. Top DoD leaders often have said further spending cuts — through sequestration or other measures — would force them to rethink that strategy.

Now, with additional cuts looming, think tanks are chiming in with ways to further tailor defense spending.

Last week, the Stimson Center think tank in Washington released a report presenting a new military strategy for DoD that could be tailored to various levels of spending.

The Project on Defense Alternatives also put together a defense plan, which calls for cutting military end strength by 19 percent. It also called for cutting large swaths of military equipment.

Along with the strategy, the Stimson-organized group — which includes a handful of retired generals and admirals — also looked at ways to make DoD more efficient without cutting end strength and major weapons programs. The panel examined a vast number of official studies and expert recommendations and concluded DoD could save about $1 trillion over the next decade if it instituted “better manpower utilization” measures and compensation system and acquisition reforms.

While the group recognized that DoD achieving the entire $1 trillion in savings is highly unlikely, it looked at what would have to be done to meet sequestration-level cuts if 20 or 40 percent of these efficiency savings were met.

“We used it to illustrate how much less difficult the choices would be if you’re forced to reduce defense spending if you were able to implement these efficiency measures,” said Barry Blechman, co-founder and distinguished fellow at the Stimson Center, on Nov. 14.

The panel also looked at what it calls a “smooth sequester” — phasing in the mandated cuts gradually over several years and not cutting all accounts evenly at 10 percent.

To get to $400 billion in efficiencies, the panel looked at cutting the Army budget by 2 percent per year, reducing brigade combat teams from 45 to between 35 and 40. The Navy could accelerate its retirements of Ticonderoga-class cruisers.

It also looked at a 1 percent cut to the Air Force budget each year and retiring 13 active-duty F-16 fighter squadrons. The report recommends keeping lower-end F-16s in the Air National Guard and placing high-end aircraft, such as F-35 joint strike fighters, in active-duty squadrons.

Lastly, DoD could choose between cutting missile defense spending and reducing nuclear and modernization forces. Even with these cuts, DoD could use money it saves to double its funding of basic applied research and increase special operations forces, cyber warfare capabilities and funding for space systems, the report states.

Assuming the lower level of efficiency savings — $200 billion — DoD would need to make deeper cuts to its force.

It could include cutting the Army budget by 5 percent and the number of brigade combat teams to 30, according to the report.

In the Air Force, the service could choose between active-duty F-16 cuts and reducing F-35 development. For the Navy, it could mean reducing F-35 development. The Marine Corps could cut its budget by 1 percent, reduce end strength by 7 percent and reprioritize its procurement plans.

Lastly, as in the first scenario, DoD could choose between cutting missile defense and reducing nuclear and modernization forces.

But generating efficiencies above the more than $200 billion DoD has already targeted over the next five years — which are separate from the $1 trillion identified by Stimson — is not realistic, Harrison said.

“It’s a noble goal. We should always be trying to get more efficient,” he said. “The reality is it’s hard to do that.”

Since DoD has given up the funds — or re-obligated them — for the already identified efficiencies, it will have to cut from other areas should those levels of saving not materialize.

“I think banking further efficiency savings as part of deficit reduction, it’s really just a way of avoiding the hard choices that you have to make,” Harrision said.

These choices include preserving near-term military readiness at the expense of giving up more force structure or forgoing modernization programs.

“No one wants to cut readiness, but you have to weigh that against the alternatives,” Harrison said. “If you don’t reduce readiness, you are going to be reducing other things, perhaps to a level that’s just not acceptable.”

DoD is facing other choices, including on the size of its ground forces, active duty versus reserves and special operations versus conventional. In aviation, the Air Force must confront its mix of stealth vs. nonstealth aircraft, as well as manned versus unmanned. As for naval, choices are needed between surface and undersea vessels.

“The reality is, you’re not going to be able to choose both,” Harrison said.